Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Melanie Musson is the fourth generation in her family to work in the insurance industry. She grew up with insurance talk as part of her everyday conversation and has studied to gain an in-depth knowledge of state-specific car insurance laws and dynamics as well as a broad understanding of how insurance fits into every person’s life, from budgets to coverage levels. She also specializes in automa...

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Reviewed by Melanie Musson
Published Insurance Expert

UPDATED: Mar 13, 2020

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Like all types of insurance, auto insurance is protection against the possibility of a catastrophe. Many people who purchase auto insurance never need to use their coverage; in fact, most people purchase an auto policy in the hopes that they won’t need it. Whenever an accident does happen, however, auto coverage will pay for the damage and injuries that a driver may otherwise be incapable of paying.

Auto insurance is also mandated by state laws. In order to register a vehicle for use on open roads, all drivers must purchase liability insurance. Some states require additional coverage as well. Because auto insurance is a necessary expense, drivers are always looking for ways to save money on premiums; this leads to car insurance being an extremely competitive industry.

How Auto Insurance Works

In order to obtain protection against accidents, drivers must purchase a policy from the insurance company. This policy is a binding contract. The insured agrees to pay a certain premium; in exchange, the company agrees to pay for injuries or damages according to the predefined coverage listed on the policy. There are numerous types of coverage, and whether an accident will be covered depends on the coverage listed on the policy. If a driver is not paying for the necessary coverage, the insurance company will not be able to pay for the accident.

Coverage generally breaks down into two types: liability and first-party. Liability insurance pays for damage and injuries that an insured driver causes to someone else. First-party coverage pays for the damage and injuries sustained by the insured driver. Together, these are known as full coverage auto insurance.

Car insurance is further broken down into specific coverages that pay for certain types of situations. For example, first-party coverage may include collision, comprehensive and uninsured motorist. These coverages each pay for a different type of accident. Liability insurance is divided into property damage and bodily injury liability.

First-party coverages usually come with a deductible. This is the amount that the insured must pay out of pocket toward a claim before the insurance company can cover any costs. For example, a person may have a collision deductible of $500. This means that they are responsible for paying the first $500 of their repairs after an auto accident; anything over this amount will be paid by the insurance company up to the worth of the vehicle.

How Much Does Car Insurance Cost?

Car insurance premiums vary tremendously from one person to the next. This occurs because the insurance company must assess a driver’s risk and calculate the costs accordingly. People at high risk of being involved in accidents will file more claims and thus cause the insurance company more money. In order to compensate for the cost of claims, insurance companies must raise prices for the people who are most likely to be involved in them. This allows them to extend discounts to good drivers and attract customers who are unlikely to be in accidents.

Some factors that an insurance company will assess when calculating premiums are the driver’s age, gender, credit score and marital status. The individual’s driving history, including accidents, citations and drunk driving convictions, will also play a major role in determining the cost of insurance. Premiums will also vary depending on the type of car being insured and where the policy is sold; certain states have higher premiums than others due to state laws, traffic concerns and number of uninsured drivers.

Once the base premium is calculated, the insured may be eligible for certain types of discount. Safe drivers may receive discounts for each year the operate a vehicle without a collision. Some companies also offer good student discounts, multiple-policy discounts and other programs that can reduce the cost of insurance.

Where to Buy Auto Insurance

Drivers can purchase a policy from an insurance agent or obtain coverage online through a direct-sales website. They can also call the insurance company for a quote and set up the policy over the phone. Different companies market themselves through different venues, so some companies may be more accessible online than others.

Regardless of the company, you can begin the search for insurance by requesting a free quote online. This will give you an idea of how much you can expect to pay and what companies are available in the area. At this point, you can choose a company that appeals to you and either find an agent or finish the insurance purchase over the phone.

When speaking with a customer service representative or agent, be sure to ask if there are discount programs available to you. Also be sure that you buy enough coverage to suit your needs. Although additional coverages are more expensive, it’s worth carrying full coverage so that you can protect your vehicle against accidental damage. By working with the insurance company to create a policy that will suit your needs, you can ensure that your assets are protected without straying from your budget.